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Pros and Cons of Term Insurance Policies

Term insurance offers simple, powerful protection—but is it the right fit for your goals? Learn the real benefits and limitations so you can choose with confidence.

 

Choose from a wide range of term insurance plans, starting at Rs. 15/day*

If you're looking for affordable life cover, term insurance is often the first—and smartest—step. It’s designed to secure your loved ones financially in case something happens to you during the policy term.

Unlike other life insurance types, it focuses purely on protection, not savings. You pay a small premium, and your family gets a lump sum payout if you're no longer around. Simple, right? But like any financial product, term insurance has its own set of pros and cons. Understanding both sides helps you make the most of your policy and avoid surprises later—so let’s break it down clearly.

What are term insurance plans?

Term insurance plans are life insurance policies that provide financial coverage for a fixed term—say, 20, 30, or even 40 years. If the insured person passes away during that time, the policy pays out a lump sum to their nominee. But if they outlive the term, no payout is made.

Think of it as a safety net during your income-earning years—ideal for young professionals, parents, and anyone with dependents or loans.

Want to know what coverage suits your income? Check plans and compare by simply filling in a few details like age, income and goals. Get quote!

Key benefits of term insurance plans

Term insurance is popular for a reason—actually, several:

  • Affordable premiums: Get large cover amounts at surprisingly low costs, especially when you buy early.

  • High sum assured: Secure Rs. 50 lakh to Rs. 2 crore or more—enough to cover your family’s long-term needs.

  • Simple and transparent: No complicated investment elements—just pure protection.

  • Customisable with riders: Add benefits like critical illness or accidental death cover to tailor your policy.

  • Convertible and renewable options: Many plans allow upgrades to permanent cover or renewal without medical tests.

Low premium, high coverage, and tax benefits—term insurance comes as an affordable solution to financial planning. Explore plans tailored to your lifestyle, and choose riders to enhance your policy—Get Quote!

Key disadvantages of term insurance plans to keep in mind

While term insurance offers immense value, it’s important to understand its limitations upfront:

  • No maturity value: If you survive the term, there's no payout or return on premiums.

  • Coverage ends with the term: Once your policy expires, you’ll need a new one—potentially at higher rates.

  • Premiums may increase upon renewal: Especially with age or if your health condition changes.

  • No investment component: Unlike ULIPs or endowment plans, it doesn’t help you build wealth.

  • Only a death cover: There are no benefits unless a claim is made—though that’s exactly why it’s so cost-effective.

Life insurance covers your family’s future—debts, income, education, and more. Check plans and secure your future today – Get Quote!

How to choose the right term insurance plan for you?

Picking a term plan shouldn’t be guesswork. Here’s how to narrow down the best fit:

  • Choose the right coverage amount: Think of your family’s lifestyle, debts, education costs, and more.

  • Set the ideal policy term: Until your kids are financially independent or loans are repaid.

  • Check premium affordability: Use a calculator to keep premiums aligned with your budget.

  • Explore optional riders: Add-on covers can turn a basic plan into a robust safety shield.

  • Research the insurer’s reputation: Look for high claim settlement ratios and positive reviews.

Compare term insurance plans side-by-side—Find your ideal policy in minutes. Get Quote!

Common myths and misconceptions about term insurance

Still unsure? You’re not alone—many misconceptions prevent people from getting the coverage they need.

  • “Term insurance is a waste if I outlive the term.”
    Actually, it's like a safety belt—there if you need it. The peace of mind is invaluable.

  • “No returns mean it’s not worth it.”
    The return is financial security when your family needs it the most.

  • “It’s only for the young.”
    Not true—anyone with dependents or financial responsibilities can benefit.

  • “It’s too complex.”
    Term insurance is one of the simplest types of life cover available.

Conclusion

Understanding both the pros and cons of term insurance helps you make a more confident, informed decision. It’s affordable, flexible, and designed to protect your family during critical financial years.

While it doesn’t offer maturity benefits, its real value lies in peace of mind—knowing that your loved ones will be financially secure, even if you’re not there to provide.

Ready to protect what matters? Get a personalised quote now and explore flexible coverage options that work for you.

What are the key term insurance plans advantages?

Term insurance plans offer several notable benefits:

  • Affordability: Term insurance plans generally have lower premiums compared to permanent insurance policies, making them one of the most cost-effective ways to secure financial protection. Even with a limited budget, individuals can opt for higher coverage without putting a strain on their finances, ensuring peace of mind.
  • High coverage amount: You can secure a substantial death cover for a relatively low premium, providing significant financial protection. This ensures that in the event of the policyholder’s untimely demise, their family members receive a sufficient payout to cover living expenses, debts, and future financial goals such as education and marriage.
  • Simplicity: Term plans are straightforward with no complex investment components, making them easy to understand and manage. Unlike other life insurance policies that come with savings or investment-linked options, term insurance is purely a risk-cover plan, ensuring clarity in benefits and eliminating the hassle of monitoring fund performances.
  • Flexibility: Policies can be customised with various terms and riders to suit your specific needs. Additional riders, such as critical illness cover, accidental death benefit, and waiver of premium, allow policyholders to enhance their coverage, making the policy more comprehensive and tailored to individual financial requirements.
  • Renewal options: Many plans offer the option to renew or convert to a permanent policy, depending on your changing needs. This is beneficial as individuals age or develop health conditions, ensuring continued coverage even if their financial or health situation changes, providing long-term security for policyholders and their families.

Read more:

Benefits of term life insurance

What are the key term insurance plans disadvantages?

While term insurance offers benefits, it also has some limitations:

  • No cash value: Unlike whole life insurance, term insurance does not accumulate any cash value over time. It functions purely as a risk-cover policy, meaning there is no savings or investment component. If the policyholder survives the term, they do not receive any financial returns.
  • No life cover: If the policyholder outlives the term of the policy, the coverage ends without any payout. There is no return of the premiums paid, making it a financial loss if the insured does not pass away within the policy period. This can be a drawback for those seeking lifelong financial security.
  • Premium increases: When the policy is renewed after the term ends, the premium amount may increase significantly due to the policyholder’s advancing age and potential health risks. This can make renewing or purchasing a new policy more expensive and less affordable in later years.
  • Limited coverage: Since term insurance only provides coverage for a specific period, it may leave gaps in financial protection if not renewed or converted into another plan. Once the policy expires, the insured is left without coverage, which could be problematic if they develop health issues that make purchasing a new policy difficult.
  • No benefits during term: Term insurance only provides financial assistance to beneficiaries in the event of the policyholder’s death during the term. If the insured survives the policy period, they do not receive any maturity or survival benefits, which might be a concern for those looking for an investment-linked policy.

How to choose the right term insurance?

Selecting the right term insurance involves several key considerations:

  • Coverage amount: Determine a sum assured that adequately covers your family's financial needs and liabilities.
  • Policy term: Choose a term that aligns with your long-term financial goals, such as the duration of outstanding loans or until dependents are financially independent.
  • Premium affordability: Ensure the premium is within your budget and remains manageable throughout the policy term.
  • Additional riders: Consider optional riders, such as critical illness or accidental death benefits, to enhance your coverage.
  • Insurer's reputation: Research the insurer’s claim settlement ratio and customer service to ensure reliability.

What are the common misconceptions about term insurance plans?

Several misconceptions can cloud judgement when considering term insurance:

  • ‘Term insurance is a waste of money’: Term insurance provides essential financial protection for a low cost, making it a valuable option for many families.
  • ‘No returns means no value’: While term insurance doesn't offer cash value, it provides crucial financial support if the policyholder dies during the term.
  • ‘It is only for young people’: Term insurance can be beneficial at any age, especially if you have dependents or outstanding liabilities.
  • ‘Policies are too complicated’: Term insurance is generally straightforward and easy to understand compared to other types of insurance.

Conclusion

Term insurance remains a popular choice for many due to its affordability and high coverage benefits. Understanding the pros and cons helps you make an informed decision, ensuring you select a policy that aligns with your financial goals and offers the necessary protection for your loved ones. By evaluating your needs and comparing options, you can secure a plan that provides peace of mind and financial security.


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Frequently asked questions

What are the benefits of term insurance?

Term insurance offers high coverage at affordable premiums, providing financial security to your family in case of your untimely death. It is straightforward, flexible, and can be customised with add-on riders like critical illness or accidental death benefits, making it a reliable protection plan.

What are the drawbacks of term insurance?

Term insurance does not accumulate cash value or offer returns if the policyholder outlives the term. Premiums may increase upon renewal, and coverage ends if not renewed. The policy only pays out in case of death, with no additional financial benefits during the policy term.

How does term insurance compare to other options?

Term insurance is more affordable than whole life or endowment policies, providing higher coverage at lower premiums. However, unlike those options, it does not build savings or cash value. It is ideal for pure protection, while other policies may offer investment or savings components.

Who should buy term insurance?

Term insurance is suitable for individuals looking for affordable life coverage, especially those with dependents, outstanding loans, or long-term financial responsibilities. It is ideal for people who need substantial protection but don't want to invest in costly permanent life insurance options.

How to apply for term insurance?

To apply for term insurance, research different plans, compare premiums and coverage, and select a policy that suits your needs. You can apply online or through an agent by filling out the necessary forms, providing medical information, and completing any required documentation.

How long should my term insurance plan last?

The duration of your term insurance should align with your financial obligations, such as loans, dependents’ needs, and retirement plans. Ideally, a policy term lasting until your major liabilities are covered or retirement age is reached ensures maximum financial security for your family.

Which is a better choice: term insurance or whole life insurance?

Term insurance is ideal for affordable, high-coverage protection, while whole life insurance offers lifelong coverage with a savings component. If you seek pure financial security at a lower cost, term insurance is better, but for long-term wealth accumulation, whole life insurance is beneficial.

When is the ideal time to buy term insurance?

The best time to purchase term insurance is as early as possible, preferably in your 20s or 30s. Buying young ensures lower premiums, higher coverage, and long-term financial security for your family, helping you lock in benefits before health risks increase.

How much sum assured should I choose for my term insurance plan?

Your sum assured should be at least 10-15 times your annual income, covering outstanding debts, children’s education, and daily expenses. Choosing an adequate sum ensures your dependents maintain their standard of living even in your absence, securing their future financially.

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Disclaimer

*T&C Apply - Bajaj Finance Limited (‘BFL’) is a registered corporate agent of third party insurance products of Bajaj Allianz Life Insurance Company Limited, HDFC Life Insurance Company Limited, Future Generali Life Insurance Company Limited, Life Insurance Corporation of India (LIC), Bajaj Allianz General Insurance Company Limited, SBI General Insurance Company Limited, ACKO General Insurance Company Limited, HDFC ERGO General Insurance Company, TATA AIG General Insurance Company Limited, ICICI Lombard General Insurance Company Limited, New India Assurance Limited, Chola MS General Insurance Company Limited, Zurich Kotak General Insurance Company Limited , Star Health & Allied  Insurance Company Limited, Care Health Insurance Company Limited,  Niva Bupa Health Insurance Company Limited, Aditya Birla Health Insurance Company Limited and Manipal Cigna Health Insurance Company Limited under the IRDAI composite CA registration number CA0101. Please note that, BFL does not underwrite the risk or act as an insurer. Your purchase of an insurance product is purely on a voluntary basis after your exercise of an independent due diligence on the suitability, viability of any insurance product. Any decision to purchase insurance product is solely at your own risk and responsibility and BFL shall not be liable for any loss or damage that any person may suffer, whether directly or indirectly. Please refer insurer's website for Policy Wordings. For more details on risk factors, terms and conditions and exclusions please read the product sales brochure carefully before concluding a sale. Tax benefits applicable if any, will be as per the prevailing tax laws. Tax laws are subject to change. BFL does NOT provide Tax/Investment advisory services.  Please consult your advisors before proceeding to purchase an insurance product. Visitors are hereby informed that their information submitted on the website may also be shared with insurers. BFL is also a distributor of other third-party products from Assistance Services providers such as CPP Assistance Services Pvt. Ltd., Bajaj Finserv Health Ltd. etc. All product information such as premium, benefits, exclusions, sum insured, value added services, etc. are authentic and solely based on the information received from the respective insurance company or the respective Assistance service provider company.

Note – While we have made all efforts and taken utmost care in gathering precise information about the products, features, benefits, etc. However, BFL cannot be held liable for any direct or indirect damage/loss. We request our customers to conduct their research about these products and refer to the respective product’s sales brochures before concluding their sale.

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